UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-4146-1
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NAVISTAR FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 36-2472404
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2850 West Golf Road Rolling Meadows, Illinois 60008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code 847-734-4000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 31, 2000, the number of shares outstanding of the registrant's common
stock was 1,600,000.
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF INTERNATIONAL TRUCK AND ENGINE
CORPORATION AND MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Statements of Consolidated Income and Retained Earnings --
Three Months and Six Months Ended April 30, 2000 and 1999........ 2
Statements of Consolidated Financial Condition --
April 30, 2000; October 31, 1999; and April 30, 1999............. 3
Statements of Consolidated Cash Flow --
Six Months Ended April 30, 2000 and 1999......................... 4
Notes to Consolidated Financial Statements....................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................. 14
Signature ............................................................... 14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30 April 30
------ ------ ------ ------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue
Retail note financing..................... $ 15.2 $ 19.0 $ 31.6 $ 41.1
Lease financing........................... 22.6 18.3 44.8 35.7
Wholesale notes........................... 16.6 16.3 35.6 31.0
Accounts.................................. 12.1 9.2 23.4 17.5
Servicing fee income...................... 7.6 5.5 14.5 11.7
Insurance premiums earned................. 11.1 8.5 21.6 17.0
Marketable securities..................... 1.9 2.4 3.7 4.4
------ ------ ------ ------
Total................................... 87.1 79.2 175.2 158.4
------ ------ ------ ------
Expense
Cost of borrowing:
Interest................................ 23.0 21.5 47.0 43.7
Other................................... 1.4 1.5 2.9 3.2
------ ------ ------ ------
Total................................. 24.4 23.0 49.9 46.9
------ ------ ------ ------
Credit, collection and administrative..... 11.7 10.7 22.6 20.8
Provision for losses on receivables....... 2.3 1.9 3.7 3.2
Insurance claims and underwriting......... 12.6 9.1 23.1 19.4
Depreciation expense and other............ 12.9 10.6 25.3 20.5
------ ------ ------ ------
Total.................................. 63.9 55.3 124.6 110.8
------ ------ ------ ------
Income Before Taxes on Income............... 23.2 23.9 50.6 47.6
Taxes on Income............................. 9.0 8.9 19.2 18.1
------ ------ ------ ------
Net Income 14.2 15.0 31.4 29.5
Retained Earnings
Beginning of period....................... 121.4 111.5 111.2 109.0
Dividends paid............................ (6.0) (13.0) (13.0) (25.0)
------ ------ ------ ------
End of period............................. $129.6 $113.5 $129.6 $113.5
====== ====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
April 30 October 31 April 30
2000 1999 1999
---------- ----------- ----------
ASSETS
<S> <C> <C> <C>
Cash and Cash Equivalents................ $ 30.0 $ 38.6 $ 13.0
Marketable Securities.................... 105.4 101.7 103.5
Finance Receivables
Retail note financing.................. 342.6 851.9 865.6
Lease financing........................ 205.5 187.8 159.5
Wholesale notes........................ 299.9 528.7 452.7
Accounts............................... 503.9 507.5 471.6
-------- -------- --------
1,351.9 2,075.9 1,949.4
Allowance for losses................... (9.4) (13.4) (13.5)
-------- -------- --------
Finance Receivables, Net............. 1,342.5 2,062.5 1,935.9
Amounts Due from Sales of Receivables.... 336.4 244.5 237.8
Equipment on Operating Leases, Net....... 268.1 266.7 236.0
Repossessions............................ 41.5 21.0 19.6
Other Assets............................. 72.4 114.1 105.6
--------- -------- --------
Total Assets............................. $2,196.3 $2,849.1 $2,651.4
========= ======== ========
LIABILITIES AND SHAREOWNER'S EQUITY
Short-Term Debt.......................... $ - $ 34.5 $ 15.0
Net Accounts Payable to Affiliates....... 249.4 706.9 564.9
Other Liabilities........................ 48.4 49.5 51.9
Senior and Subordinated Debt............. 1,497.4 1,675.8 1,631.2
Dealers' Reserves........................ 23.2 24.2 24.4
Unpaid Insurance Claims
and Unearned Premiums.................. 79.7 77.9 78.2
Shareowner's Equity
Capital stock (Par value $1.00,
1,600,000 shares issued and
outstanding) and paid-in capital..... 171.0 171.0 171.0
Retained earnings...................... 129.6 111.2 113.5
Accumulated other comprehensive
(loss) income........................ (2.4) (1.9) 1.3
-------- -------- --------
Total................................ 298.2 280.3 285.8
-------- -------- --------
Total Liabilities and
Shareowner's Equity.................... $2,196.3 $2,849.1 $2,651.4
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOW (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
Six Months Ended
April 30
--------------------
2000 1999
-------- --------
<S> <C> <C>
Cash Flow From Operations
Net income............................................. $ 31.4 $ 29.5
Adjustments to reconcile net income to cash
provided by operations:
Gains on sales of receivables........................ (2.5) (5.7)
Depreciation and amortization........................ 27.0 22.0
Provision for losses on receivables.................. 3.7 3.2
(Decrease) increase in accounts payable
to affiliates...................................... (457.5) 428.1
Other................................................ (0.3) (13.0)
------- -------
Total.............................................. (398.2) 464.1
------- -------
Cash Flow From Investing Activities
Proceeds from sold retail notes........................ 960.0 511.6
Purchase of retail notes and lease receivables......... (579.8) (662.2)
Principal collections on retail notes and
lease receivables.................................... 40.9 31.5
Proceeds from sold wholesale notes..................... 300.0 -
Acquisitions over cash collections of wholesale
notes and accounts receivable........................ (115.0) (299.1)
Purchase of marketable securities...................... (17.5) (20.7)
Proceeds from sales and maturities
of marketable securities............................. 13.7 26.1
Purchase of equipment leased to others................. (38.5) (46.6)
Sale of equipment leased to others..................... 11.5 7.7
------- -------
Total................................................ 575.3 (451.7)
------- -------
Cash Flow From Financing Activities
Net decrease in short term borrowings.................. (34.5) (6.8)
Net increase in bank revolving credit facility usage... 55.0 40.0
Net (decrease) increase in asset-backed commercial
paper facility usage................................. (229.8) 11.3
Proceeds from long-term debt........................... 76.3 73.3
Principal payments of long-term debt................... (39.7) (106.3)
Dividends paid to International........................ (13.0) (25.0)
------- -------
Total................................................ (185.7) (13.5)
------- -------
Decrease in Cash and Cash Equivalents.................... (8.6) (1.1)
Cash and Cash Equivalents at Beginning of Period......... 38.6 14.1
------- -------
Cash and Cash Equivalents at End of Period............... $ 30.0 $ 13.0
======= =======
Supplemental disclosure of cash flow information
Interest paid.......................................... $ 49.0 $ 49.4
======= =======
Income taxes paid...................................... $ 20.4 $ 15.3
======= =======
</TABLE>
See Notes to Consolidated Statements.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated financial statements include the accounts of Navistar
Financial Corporation and its wholly-owned subsidiaries ("Corporation").
Navistar International Transportation Corp. ("Transportation"), which is
wholly-owned by Navistar International Corporation ("Navistar"), is the
parent company of the Corporation. Effective February 23, 2000,
Transportation changed its name to International Truck and Engine
Corporation ("International").
The accompanying unaudited financial statements have been prepared in
accordance with accounting policies described in the Corporation's 1999
Annual Report on Form 10-K and should be read in conjunction with the
disclosures therein.
In the opinion of management, these interim financial statements reflect
all adjustments, consisting of normal recurring accruals, necessary to
present fairly the results of operations, financial condition and cash flow
for the interim periods presented. Interim results are not necessarily
indicative of results to be expected for the full year.
2. Finance receivable balances do not include receivables sold by the
Corporation to public and private investors with limited recourse
provisions. Outstanding sold receivable balances are as follows:
April 30 October 31 April 30
2000 1999 1999
($ Millions)
Retail notes....................... $2,223.7 $1,696.0 $1,493.4
Wholesale notes.................... 900.0 600.0 600.0
-------- -------- --------
Total........................ $3,123.7 $2,296.0 $2,093.4
======== ======== ========
In November 1999, the Corporation sold $533 million of retail notes, net of
unearned finance income, through Navistar Financial Retail Receivables
Corporation ("NFRRC"), a wholly owned subsidiary of the Corporation, to two
multi-seller asset-backed commercial paper conduits sponsored by a major
financial institution. A gain of $2.2 million was recognized on the sale.
In January 2000, the Corporation sold $300 million of variable funding
certificates, through Navistar Financial Securities Corporation ("NFSC"), a
wholly owned subsidiary of the Corporation, to a conduit sponsored by a
major financial institution. The variable funding certificates mature in
2001. At April 30, 2000, NFSC has in place a revolving wholesale note trust
that provides for the funding of $900 million of eligible wholesale notes.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In March 2000, the Corporation sold $475 million of retail notes, net of
unearned finance income, through NFRRC to an owner trust which, in turn,
sold notes to investors. A gain of $0.3 million was recognized on the sale.
The allowance for losses on receivables is summarized as follows:
April 30 October 31 April 30
2000 1999 1999
($ Millions)
Allowance pertaining to:
Owned notes..................... $ 9.4 $13.4 $13.5
Sold notes...................... 16.8 12.8 12.7
----- ----- -----
Total..................... $26.2 $26.2 $26.2
===== ===== =====
3. As of April 30, 2000, the Corporation entered into a total of $250 million
of forward treasury locks and $50 million of forward starting swaps in
anticipation of a July 2000 sale of retail receivables. Any gain or loss
will be included in the gain or loss on the sale of receivables recognized
in July 2000.
In November 1999, the Corporation sold fixed rate retail receivables on a
variable rate basis and entered into an interest rate swap agreement to
hedge the future cash flows of the amounts due from the sale of
receivables. In March 2000, the Corporation transferred all the rights and
obligations of the swap to the conduit. Under the terms of the agreement,
the Corporation will make or receive payments based on the differential
between the transferred swap notional amount and the securitization
transaction net outstanding balance. The net settlement is included in
retail note financing revenue.
In November 1998, the Corporation sold fixed rate retail receivables to a
multi-seller asset-backed commercial paper conduit sponsored by a major
financial institution on a variable rate basis. For the protection of
investors, the Corporation issued an interest rate cap. The notional amount
of the cap amortizes based on the expected outstanding principal balance of
the sold retail receivables. Under the terms of the cap agreement, the
Corporation will make payments if interest rates exceed certain levels. As
of April 30, 2000 the cap had a notional amount of $295 million and a fair
value of $2.3 million.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. The Corporation's total comprehensive income was as follows:
Three Months Six Months
Ended April 30 Ended April 30
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
($ Millions)
Net Income............................ $14.2 $15.0 $31.4 $29.5
Changes in unrealized gains
(losses) on marketable securities... 1.3 0.0 (0.5) (0.2)
----- ----- ----- -----
Total Comprehensive Income.......... $15.5 $15.0 $30.9 $29.3
===== ===== ===== =====
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements under this caption, which involve risks and uncertainties,
constitute "forward-looking statements" under the Securities Reform Act.
Navistar Financial Corporation's actual results may differ significantly from
the results discussed in such forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed under
the headings "Year 2000" and "Business Outlook."
Financing Volume
In the first half of fiscal 2000 industry retail sales for Class 5 through 8
trucks was approximately 3.0% higher than 1999. The Corporation's retail
financing acquisitions during the first six months of fiscal 2000, including
retail notes and finance and operating leases, were $618 million, 13% lower than
1999. The decrease resulted primarily from the continuing, highly competitive
commercial financing market, which led to a decrease in the Corporation's
finance market share of new International trucks sold in the U.S. from 15.1% in
1999 to 12.9% in fiscal 2000. Serviced retail notes and lease financing balances
were $3,040 million and $2,755 million at April 30, 2000 and 1999, respectively.
In spite of the continued strong liquidity in the commercial financing market,
the Corporation provided 96% of the wholesale financing of new trucks sold to
International's dealers in the first quarter of fiscal 2000 and 1999. Serviced
wholesale note balances were $1,344 million at April 30, 2000, a 17% increase
compared to April 30, 1999 due to the strong industry demand.
Results of Operations
The components of net income for the three and six month periods ended April 30
are as follows:
Three Months Six Months
Ended April 30 Ended April 30
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
Income before income taxes:
Finance operations.................... $23.1 $22.1 $48.6 $45.7
Insurance operations.................. 0.1 1.8 2.0 1.9
----- ----- ----- -----
Income before taxes................... 23.2 23.9 50.6 47.6
Taxes on income....................... 9.0 8.9 19.2 18.1
----- ----- ----- -----
Net income........................ $14.2 $15.0 $31.4 $29.5
===== ===== ===== =====
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
Finance Operations:
During the second quarter of fiscal 2000, the Corporation's pretax income of $23
million was $1 million lower than the corresponding period of fiscal 1999.
Pretax income during the first six months of 2000 increased $3 million to $51
million compared to the same period of 1999. The decrease in the second quarter
is primarily due to lower owned retail note balances and margins, partially
offset by higher wholesale note balances. The improvement for the first six
months was due primarily to a higher level of average outstanding accounts
payable to affiliates which proportionately lowered debt levels and interest
expense. This was offset, in part, by lower gains on the sale of retail note
receivables and the competitive commercial financing market which continued to
put pressure on retail and wholesale finance margins.
Retail note financing revenue decreased $9 million to $32 million in the first
half of 2000 compared to 1999. The decrease is primarily the result of a
decrease in owned retail note balances and margins and lower gains on the sale
of retail note receivables. Gains on the sale of retail note receivables were $3
million and $6 million in the first half of fiscal 2000 and 1999, respectively.
The lower gains reflects lower retail note margins and increased funding rates
offered to the Corporation in the asset-backed market.
Lease financing revenue increased $9 million to $45 million in the first half of
2000 compared to 1999. The increase is primarily the result of continued growth
in lease financing.
Wholesale note revenue increased to $36 million in the first half of 2000
compared to $31 million in fiscal 1999 due primarily as a result of the higher
level of wholesale financing activity and an increase in the average prime rate.
Retail and wholesale account revenue was $23 million in the first half of 2000
compared to $18 million in 1999. The increase was primarily the result of higher
average balances and an increase in the average prime rate.
Service fee income was $15 million in the first half of 2000 compared to $12
million in 1999. The increase was primarily the result of higher average sold
balances.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
Finance Operations (continued):
Borrowing costs increased $3 million to $50 million during the first half of
2000 due primarily to higher average receivable funding requirements and higher
average interest rates, partially offset by the higher level of average
outstanding accounts payable to affiliates. The higher level of average
outstanding accounts payable to affiliates reduced debt levels and resulted in a
reduction in borrowing costs of $6 million for the first half of fiscal year
2000. The Corporation's weighted average interest rate on all debt increased
during the first six months of 2000 to 6.2% from 5.6% in the first half of 1999
primarily due to higher average market interest rates.
Provision for losses on receivables totaled $4 million in the first six months
of 2000 compared with $3 million in 1999. The increase in 2000 was primarily due
to the increase in serviced finance receivable balances. The Corporation's
allowance for losses as a percentage of serviced finance receivables was .54%,
.55% and .60% at April 30, 2000, October 31, 1999 and April 30, 1999,
respectively.
Depreciation and other expenses during the first six months of 2000 was $25
million compared to $21 million in the comparable period of 1999. The increase
is primarily the result of a larger investment in equipment under operating
leases.
Insurance Operations:
Harco National Insurance Company's pretax income in the first half of fiscal
2000 was comparable to the same period in fiscal 1999. The increase on premiums
earned on liability business was offset by an increase in liability losses.
Liquidity and Funds Management
The Corporation has traditionally obtained the funds to provide financing to
International's dealers and retail customers from sales of finance receivables,
commercial paper, short and long-term bank borrowings, medium and long-term debt
and equity capital. The Corporation's current debt ratings have made sales of
finance receivables the most economical source of funding. The Corporation's
insurance subsidiary generates its funds through internal operations and has no
external borrowings.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Funds Management (continued)
In February 2000, Standard and Poors raised the Corporation's senior debt
ratings from BB+ to BBB-, while the subordinated debt ratings were also raised
from BB- to BB+. In May 1999, Moody's and Duff and Phelps raised the
Corporation's senior debt ratings from Ba1 and BBB- to Baa3 and BBB,
respectively, while also raising the subordinated debt ratings from Ba3 and BB+
to Ba2 and BBB-, respectively.
Operations used $398 million in cash in the first half of 2000 primarily as a
result of the decrease of $458 million in accounts payable to affiliates. To
fund the cash used for operations, investing activities provided $575 million in
cash during this period primarily as a result of the sale of retail and
wholesale notes, partially offset by the purchases of retail note and lease
receivables. The excess cash generated by investing activities was used to lower
borrowings in the asset-backed commercial paper facility and to pay dividends of
$13 million.
Receivable sales were a significant source of funding in both 2000 and 1999.
Through the asset-backed markets, the Corporation has been able to fund fixed
rate retail note receivables at rates offered to companies with investment grade
ratings. During the first half of fiscal 2000, the Corporation sold $1,008
million of retail notes, net of unearned finance income, through Navistar
Financial Retail Receivables Corporation ("NFRRC"), a wholly owned subsidiary.
The Corporation sold $533 million of retail notes in November 1999 to two
multi-seller asset-backed commercial paper conduits sponsored by a major
financial institution and $475 million of retail notes in March 2000 to an owner
trust which, in turn, issued securities which were sold to investors. During the
first half of fiscal 1999, the Corporation sold $545 million of retail notes,
net of unearned finance income, through NFRRC to a multi-seller asset-backed
commercial paper conduit sponsored by a major financial institution. At April
30, 2000, the remaining shelf registration available to NFRRC for the public
issuance of asset-backed securities was $1,783 million.
In January 2000, the Corporation sold $300 million of variable funding
certificates, through Navistar Financial Securities Corporation ("NFSC"), a
wholly owned subsidiary of the Corporation, to a conduit sponsored by a major
financial institution. The variable funding certificates mature in 2001. At
April 30, 2000, NFSC had a revolving wholesale note trust that provides for the
funding of $900 million of eligible wholesale notes.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Funds Management (continued)
At April 30, 2000, available funding under the bank revolving credit facility
and the asset-backed commercial paper facility was $302 million. When combined
with unrestricted cash and cash equivalents, $332 million was available to fund
the general business purposes of the Corporation.
As of April 30, 2000, the Corporation entered into a total of $250 million of
forward treasury locks and $50 million of forward starting swaps in anticipation
of a July 2000 sale of retail receivables. Any gain or loss will be included in
the gain or loss on the sale of receivables recognized in July 2000.
In November 1999, the Corporation sold fixed rate retail receivables on a
variable rate basis and entered into an interest rate swap agreement to hedge
the future cash flows of the amounts due from the sale of receivables. In March
2000, the Corporation transferred all the rights and obligations of the swap to
the conduit. Under the terms of the agreement, the Corporation will make or
receive payments based on the differential between the transferred swap notional
amount and the securitization transaction net outstanding balance. The net
settlement is included in retail note financing revenue.
In November 1998, the Corporation sold fixed rate retail receivables on a
variable rate basis. For the protection of investors, the Corporation issued an
interest rate cap. Under the terms of the agreement, the Corporation will make
payments if interest rates exceed certain levels. The notional amount of the cap
amortizes based on the expected outstanding principal balance of the sold retail
receivables. As of April 30, 2000 the notional amount was $295 million and the
interest rate cap had a fair value of $2 million.
Year 2000
As described in the 1999 Annual Report on Form 10-K, the Corporation had
instituted a corporate-wide Year 2000 readiness project to identify all
significant information technology ("IT") applications which would require
modification or replacement, and to establish appropriate remediation and
contingency plans to avoid an impact on the company's ability to continue to
provide its products and services. Through the date of this report, the company
has not experienced any significant Year 2000 problems but will continue to
monitor its critical systems over the next several months. In the event that
significant issues arise, the company's contingency plans remain in place.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Year 2000 (continued)
Total costs connected with the remediation of the Corporation's significant IT
systems totaled $2 million in 1999, $3 million in 1998 and $1 million in 1997.
Costs in the first half of fiscal year 2000 were not material. Approximately 25%
of the total costs, representing investment in purchased IT systems, were
capitalized and will be depreciated over three to five years. The total cost of
the Year 2000 project has not had a material impact on the Corporation's
financial position or results of operations and has been funded through
operating cash flows.
Business Outlook
The truck industry in 2000 is forecasted to decrease approximately 13% from
1999. The competitive commercial financing market will continue to put pressure
on the Corporation's retail and wholesale financing activity and margins.
Increased volatility in the capital markets is likely to put additional pressure
on the funding rates offered to the Corporation in the asset-backed public
market, commercial paper markets and other debt financing markets. Additionally,
rising fuel costs may impact the financial strength of the Corporation's
customers and the Corporation's ability to maintain the current level of
portfolio quality.
Management believes that collections on the outstanding receivables portfolio
plus cash available from the Corporation's various funding sources will permit
Navistar Financial Corporation to meet the financing requirements of
International's dealers and retail customers through 2000 and beyond.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the six months ended
April 30, 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Navistar Financial Corporation
(Registrant)
Date June 13, 2000 /s/R. D. Markle
------------- ---------------------------------
R. D. Markle
Vice President and Controller
(Principal Accounting Officer)
